Understanding Sanctions Properly

BY KIRILL ROGOV

It has become commonplace among journalists, experts, and even politicians to think that economic sanctions do not work, although politicians defend the measure’s utility as a tool. Sanctions against Russia that looked crushing in the beginning are now seen as a major disappointment. They failed to stop Russia’s war against Ukraine by undermining the Kremlin’s economic potential and setting the public against the regime. Instead, the sanctions’ side effects are destabilizing the world’s economy and, by extension, its politics.

Yet to dismiss sanctions as ineffective is both to simplify and to exaggerate things, if not to completely misunderstand them. In reality, a lot depends on the measuring tools we use, on how the sanctions’ effectiveness is evaluated, on different players’ perspectives, and on the time horizon we choose. Understanding the political economy of sanctions, which is much more complex than might appear at first glance, is extremely important for assessing Russia’s long-term prospects and international relations in general.

The paradox that many experts and researchers confront is that while sanctions are becoming an increasingly common tool in international relations and in U.S. foreign policy in particular, evidence of their effectiveness appears less and less convincing. Moreover, their effectiveness is declining. Efficacy studies show that 35–40 percent of sanctions regimes have worked in part—though not necessarily achieving fully their stated goals.

And even that figure has been put in question. Today, calculations show that the 35–40 percent (partial) efficacy of sanctions was typical for the 1980s and 1990s, when the West’s economic and political power was much greater and emerging markets were more dependent on capital flows from developed countries. By the mid-2010s the average level of efficacy of sanctions had dropped below 20 percent.

Why Some Rogue Regimes Are Resistant to Sanctions

Traditionally, “efficacy” meant achievement of the sanctions’ stated aims, usually either forcing a rogue regime to change its aggressive policies or bringing about a regime change that would lead to more benign policies. These kinds of expectations have led to the paradox described above, namely, the increasing use of sanctions in the face of their decreasing effectiveness.

A major problem with this view is that the probability of sanctions bringing about a change in policy by the sanctioned entity is higher in democracies than in autocracies. The former have a greater number of players capable of actively participating in the national debate. As a result, the citizenry is more sensitive to the economic consequences of sanctions and more critical of its elected representatives who do not adjust in response to foreign pressure.

Authoritarian regimes, by contrast, are able to stifle such debates and present elite consensus on a tough response to threats of economic restrictions levied by foreign powers. In such cases, foreign pressure is more likely to cause rally-’round-the-flag effects, consolidate support groups, and strengthen rather than weaken authoritarian regimes. In addition, authoritarian regimes have greater opportunities to redistribute the sanctions’ costs, protecting certain groups and elite cadres from those costs and suppressing discontent by pitting domestic winners against domestic losers.

As a result, an unexpected effect of sanctions against authoritarian regimes is that they worsen the situation with democratic freedoms and human rights in the sanctioned country. When foreign pressure is applied it nullifies even the limited commitments in these areas that an authoritarian government may have respected before the sanctions were imposed. Foreign pressure mobilizes support groups for the regime, marginalizes the opposition, and leads to the preservation of the political regime, as seen, for example, in Cuba, North Korea, and Iran.

Sanctions Policies and the Sanctions Themselves

Are sanctions completely ineffective if they are less likely to change the policies of a sanctioned country and more likely to strengthen an authoritarian regime than to bring it down? No. That view needs nuancing, at the very least.

For sanctions policies include not only restrictions themselves but also—and very importantly—the threat of pressure. It is the threat of sanctions that plays a significant role in international relations, warning governments against making dangerous decisions and protecting at least some human rights and democratic institutions in problematic regimes.

At the same time, the threat of sanctions works as a factor both when this threat becomes explicit and when it is present as an initial political constraint, determined by previous economic restrictions. It is the threat of sanctions that has the main effect on international affairs. This influence is difficult to measure precisely because of its normative nature. The same argument explains why sanctions must be imposed if the threat of imposing them did not work. Even though the probability of success of sanctions is not great, they still must be imposed to ensure the policies’ credibility and the measures’ efficacy in the future.

The Political Economy of Sanctions

This same line of argument allows us to take a more detailed and realistic look at the mechanisms and logic of "sanctions conflicts," that is, to understand the political economy of sanctions.

In a large number of cases, governments structure their policies so as not to be threatened by sanctions, or else adjust their policies once they face such threats. Only when they assume that the imposition of sanctions will not have a terminal effect, will not cause a domestic crisis or a regime change, do they consider a hard-line resistance to foreign pressure.

According to this logic, there is nothing strange about the fact that sanctions usually do not lead to policy changes as the threat of sanctions has already been taken into account. It is only when sanctions do have a greater effect on the economy and societies than the rulers assumed, only when restrictions jeopardize the existence of a hard-line government, that these governments either call for a retreat or lose power. And it is only this set of cases that experts on sanctions consider “successes” of sanctions policies, creating a profoundly wrong idea of the inherent effectiveness of economic pressure.

Underestimating credible threats of restrictions, according to some researchers, leads to an underestimation of their economic effects too. Most likely, regimes that evaluate economic effects of sanctions as significant tend not to allow the situation to come to a head, while “persistent” regimes, on the contrary, tend to prepare their economies in advance to minimize the restrictions’ effect.

Sanctions thus have invisible effects that are often missed when we analyze them. Problematic regimes cripple their own economies by imposing self-sufficiency policies, that is, by limiting the inflow of capital, foreign investment, technology transfer, and imports. In such a case the country is more immune to sanctions, but not because sanctions cause less damage to its economy. It is immune because the damage is stretched out over time and allows the hard-liners to keep their seats.

Economic Effects of Sanctions

Here is one more fundamental paradox about sanctions. There is no doubt that broad sanctions imposed by influential coalitions have significant negative effects on the target economy. Only the scale of these effects is debatable: in order to adequately assess economic losses, it is necessary to take into account potential growth. Different measurement methods lead to different results.

Some estimates show that the initial effect averages 2.3–3.5 percent of GDP and then declines for about ten years if sanctions are imposed by a truly broad coalition (such as the UN). But if sanctions are imposed unilaterally by, say, the United States, the lost growth is estimated at 0.5–0.9 percent per year cumulative over seven years. A fairly authoritative estimate is that Iran lost 17 percent of its potential GDP as a result of sanctions that were in effect between 2011 and 2014 (both multinational and U.S. secondary sanctions). Russian economist and former deputy chair of the Russian Central Bank Sergey Aleksashenko believes that the sanctions imposed on Russia in 2014−2015 resulted in the loss of 16 percent of potential GDP by 2021.

In other words, a regime’s ability to resist broad sanctions imposed on it by an influential coalition allows the government to retain power, but at the same time it maximizes the economy’s and society’s long-term losses while also reinforcing and perpetuating the negative factors of development—authoritarianism, the violation of human rights, a closed society, an isolated economy.

The opinions expressed in this article are those solely of the author and do not reflect the views of the Kennan Institute.